Voltas Ltd – Positive (Analyst: Tarang Bhanushali)
CMP (Rs) 522
Voltas reported weak set of numbers largely due to weak growth in its UCP business. Revenue de grew 3% yoy as the channel was focused on liquidating its inventory. The company’s market share in the air conditioning segment increased from 22% in 9M FY18 to 24% in 9M FY19. Increased input costs, hike in customs duty and pricing pressure on account of high channel inventory led to 450bps yoy contraction in UCP margin to 8.5% in Q3 FY19. The impact of weak numbers from UCP business was somewhat offset by strong performance in the other two segments. EMPS segment continued to register strong growth as execution has picked up. EMPS margin expanded 82bps yoy to 7.9% led by timely execution of high margin orders both in international and domestic market. EMPS order book as of December’19 stood at Rs.50bn, of which Rs.31bn is domestic book and rest is international. The company’s consistency in order execution and winning good quality orders, makes us positive on EMPS division. YTD FY19 has been muted for UCP segment, however in the long run the segment would gain from increased inclination towards energy efficient units, higher disposable income, increased penetration in tier 2 and 3 markets and localization. Based on the above facts, we remain positive on Voltas.
New facility to help save on cost and time
Voltas plans to construct a new facility on 65 acres land at Tirupati with a total investment of Rs.5bn spent over a period of time. This facility will have a capacity of 1mn units and will initially produce and assemble air conditioner and related cooling products. Voltas will have easy access to eastern port, thereby saving on logistic costs on import of critical components from China and South-east Asia. It will also help Voltas to increase its footprint in the southern market. The products from the factory will start rolling out from H2 FY20.
Repco Home Finance Ltd – Positive (Analyst: Rajiv Mehta)
CMP (Rs) 336
Healthy disbursements, steady spread and reasonable control on NPLs
Q3 FY19 was a challenging quarter for HFCs and NBFCs with many of them constrained to do business due to calibrated or marginal availability of liquidity. In context of this and the sticky issues in the home state of TN, Repco delivered a healthy 12% yoy growth in disbursements and loan portfolio. The non-TN portfolio (particularly Karnataka, Maharashtra, Telangana and Gujarat) continues to grow by a strong 23-25% yoy driven by branch expansion and market penetration, and its share in the overall loan book rose to 42%. The asset profile also continues to move towards home loans and salaried customers (informal segment).
While the funding cost went up by 15-20bps qoq with increased reliance on banks and them introducing/expanding spread over MCLR, the lending spread was sustained at 3% with significant lending rate hike coming into effect for FY18-ending portfolio and upward adjustment in disbursement rate during the year. Incremental lending spread is at 2.5%. While loan portfolio re-pricing would be gradual henceforth, the cost of funding is expected to stabilize. Repco is again tapping the CP market where short-term money is available at rates prevailing before the crisis.
Sadbhav Engineering Ltd – Positive (Analyst: Alok Deora)
CMP (Rs) 163
Sadbhav Engineering Ltd (SEL) reported muted numbers during Q3 FY19 with topline growing 10% yoy. Operating margin declined 61bps yoy to 12% owing to higher construction and employee expenses. Also, higher tax outgo negated the benefits of benign depreciation and interest costs, thereby, impacting company’s performance at net level. At the end of Dec’18, SEL’s order book position remained strong at ~Rs.129bn (3.5x TTM revenues), mainly contributed by transport (78%) and mining (18%) segments. However, ~60% of the overall order book is yet to start meaningful execution owing to delays in receipt of appointed dates. Recently, during Dec’18 and Jan’19, the company has received appointed dates for 4 projects. In addition, the company expects receipt of appointed dates in remaining 4 projects worth ~Rs.31bn. With this, we expect revenues to witness sharp increase in FY20E. Also, margin is likely to hover at ~12% given current mix of order book. Debt is likely to decline gradually from the current levels of ~Rs.14.5bn. With strong execution capabilities coupled with elavated order book position, we are positive on the growth prospects.
Order book at elevated levels; execution to pick-up
SEL’s order book position remains robust at ~Rs.129bn. In addition, the company expects inflows of ~Rs.25bn in the near term backed by huge bid pipeline from NHAI. This is likely to keep its order book at elevated levels. However, the company faced delays in receipts of appointed dates, which kept its performance muted during 9M FY19. Going forward, with expected appointed dates receipts in most of the projects by Q1 FY20, the company is poised for strong growth over next couple of years.
PNC Infratech Ltd – BUY (Analyst: Alok Deora)
CMP (Rs) 137, 12-mths Target (Rs) 180, Upside 31%
PNC Infratech Ltd (PNC) reported strong set of numbers with 54% topline growth to Rs.73 bn. Its operating margin continues to remain healthy at 14.0%. As on 31st Dec 2018, PNC order book remained robust at ~Rs.80bn (excluding projects worth Rs.58 bn constituting three HAM projects and a package of Nagpur-Mumbai Expressway). PNC has received appointed dates for most of the pending HAM projects and also for the Nagpur-Mumbai Expressway, which would support the topline growth in FY20E and beyond. While the order book is strong, considering the massive bid pipeline, the company is selectively eveluating opportunities. It has currently bid for an expessway project and four Airport Modernisation projects where bids are yet to open. Considering the robust order book and bid pipeline, we expect PNC to clock ~40% topline CAGR over FY18-21E. We also expect earnings growth to remain healthy on the back of high margin order book under execution. PNC’s EPC business is currently trading at 9.9x FY21E P/E. We recommend a BUY rating on the stock for target of Rs.180 (based on SOTP valuation).
Massive Order book places PNC in a sweet spot; Execution holds the key
While PNC has been hands full as far as order book is concerned, the execution has been dragging due to land acqusition issues in certain projects. With most of the projects falling on track, the execution run-rate has improved drastically. We believe, the company is very well placed to deliver industry leading growth over the next couple of years. Also, with the strong order pipeline and PNC’s comfortable balance sheet position, the company may look forward to bag some decent-size projects in the medium term.
